Chapter 53, Articles 11 through 18 NMSA 1978 may be cited as the "Business Corporation Act".

History: 1953 Comp., § 51-24-1, enacted by Laws 1967, ch. 81, § 1; 1977, ch. 103, § 9; 1998, ch. 108, § 27; 2001, ch. 200, § 40.

Compiler's notes. — This section is derived from Section 1 of the ABA Model Business Corporation Act.

Cross references. — For Professional Corporation Act, see 53-6-1 NMSA 1978 et seq.

For Uniform Unclaimed Property Act, see Chapter 7, Article 8A NMSA 1978.

The 2001 amendment, effective July 1, 2001, substituted "Chapter 53, Articles 11 through 18 NMSA 1978" for "Sections 53-11-1 through 53-18-12 NMSA 1978 is the general corporation law of New Mexico and".

The 1998 amendment, effective January 1, 1999, substituted "53-11-1 through 53-18-12 NMSA 1978" for "51-31-11 NMSA 1953" near the beginning of the section.

Liability of shareholder. — Nothing in Article 15 of the Business Corporation Act or in the Professional Corporation Act (53-6-1 to 53-6-14 NMSA 1978) permits rendering an individual judgment against a shareholder of a professional corporation based solely upon a failure of the corporation to properly value the stock of the corporation. For that reason, such liability must be predicated on a theory outside the language of the statute. Morrow v. Cooper, 1991-NMCA-108, 113 N.M. 246, 824 P.2d 1048.

Piercing the corporate veil. — A corporation will ordinarily be treated as a legal entity separate from its shareholders, and individual shareholders cannot be held personally liable for the corporation's debt. Under certain circumstances, however, courts may exercise their equitable powers to pierce the corporate veil and require shareholders to answer for the corporation's liability. To pierce the corporate veil, the district court must find that the corporation was operated in a fashion not to serve the valid goals and purposes of that corporation but instead under the domination and control and for the purposes of some dominant party, that there is some form of moral culpability attributable to the shareholder such as use of the corporation to perpetrate a fraud, and that there is some reasonable relationship between the injury suffered by the plaintiff and the actions of the defendant. Morrissey v. Krystopowicz, 2016-NMCA-011.

Where defendant set up corporations to own and operate a number of nursing homes in New Mexico, and where defendant channeled millions of dollars from the revenues of the nursing homes to an account controlled by defendant, from which hundreds of thousands of dollars in distributions were made to defendant and a co-owner of the corporation, evidence that defendant exercised improper domination of the corporations, that defendant used the corporations for improper purposes, and that defendant's abuse of the corporate form resulted in a sham corporation leading to plaintiff's inability to recover for her injury, was sufficient to pierce the corporate veil of the sham corporations such that defendant can be held liable for the corporations' liabilities. Morrissey v. Krystopowicz, 2016-NMCA-011.

Fraud in the inducement in shareholder agreement of professional corporation. — Where there is fraud in the inducement to enter into a shareholder agreement, the contract is voidable, capable of being affirmed or rejected at the option of one of the parties, and remains in effect until the fraud by which the defrauded party had been induced to sign is discovered. Jones v. Aug , 2015-NMCA-016, cert. denied, 2015-NMCERT-001.

Where appellant shareholder, without the knowledge of other shareholders, modified his shareholder employment agreement, putting in place a more generous deferred compensation package than the other shareholders, there is fraud in the inducement to enter into the contract and the contract is voidable, remaining in effect until the fraud is discovered. Jones v. Aug , 2015-NMCA-016, cert. denied, 2015-NMCERT-001.

Punitive damages for breach of fiduciary duties. — Punitive damages are appropriate when an actor willfully breaches fiduciary duties. Jones v. Aug , 2015-NMCA-016, cert. denied, 2015-NMCERT-001.

Where appellant shareholder, without the knowledge of other shareholders, modified his shareholder employment agreement, putting in place a more generous deferred compensation package than the other shareholders, overpaid himself by hundreds of thousands of dollars, failed to inform other shareholders of bonuses paid to himself without appropriate basis, controlled the shareholder allocation sheets that the shareholders used to track their compensation, failed to inform other shareholders of material facts and information relating to business and financial affairs, knowingly submitted incorrect information about his bonuses at shareholder meetings, and knowingly and intentionally paid himself bonuses to the substantial economic detriment of the other shareholders and the corporation itself, the award of punitive damages was appropriate. Jones v. Aug , 2015-NMCA-016, cert. denied, 2015-NMCERT-001.

Contract reformation is a remedy for fraud and may form the basis for an award of punitive damages. — Contract reformation is an equitable remedy by which a court will modify a written agreement to reflect the actual intent of the parties, usually to correct fraud or mutual mistake in the writing; where a plaintiff has established a cause of action in equity and the wrongdoer's misconduct is willful, wanton, malicious, reckless, fraudulent and in bad faith, punitive damages are allowable to do complete justice. Jones v. Aug , 2015-NMCA-016, cert. denied, 2015-NMCERT-001.

Where appellant shareholder, without the knowledge of other shareholders, modified his shareholder employment agreement, putting in place a more generous deferred compensation package than the other shareholders, overpaid himself by hundreds of thousands of dollars, failed to inform other shareholders of bonuses paid to himself without appropriate basis, controlled the shareholder allocation sheets that the shareholders used to track their compensation, failed to inform other shareholders of material facts and information relating to business and financial affairs, knowingly submitted incorrect information about his bonuses at shareholder meetings, and knowingly and intentionally paid himself bonuses to the substantial economic detriment of the other shareholders and the corporation itself, appellees request to make all the shareholder agreements equal fell squarely within the definition of the equitable remedy of contract reformation, and the award of punitive damages was appropriate. Jones v. Aug , 2015-NMCA-016, cert. denied, 2015-NMCERT-001.

Act inapplicable to corporation organized for banking. — The powers and authorities established for corporations by the Business Corporation Act, including the authority to issue preferred stock, would not apply to a corporation organized for the purpose of banking. 1979 Op. Att'y Gen. No. 79-06.

How corporation may be terminated. — A corporation being granted life by the act of a sovereign, that is by the act of the laws of the state wherein it is incorporated, nothing less than that power or the lapse of the period of life provided by the articles of incorporation or by the dissolution of the corporation by permission of the sovereignty can take that life away. 1953 Op. Att'y Gen. No. 53-5723 (rendered under former law).

Law reviews. — For article, "Attachment in New Mexico - Part I," see 1 Nat. Res. J. 303 (1961).

For article, "1983 Amendments to the New Mexico Business Corporation Act and Related Statutes," see 14 N.M.L. Rev. 371 (1984).

Annual Survey of New Mexico Corporate Law, see 17 N.M.L. Rev. 253 (1987).

For note, "Piercing the Corporate Veil in New Mexico: Scott v. AZL Res., Inc.," see 21 N.M.L. Rev. 429 (1991).

For note, "The Fiduciary Duties Owed in a New Mexico Closely Held Corporation: Walta v. Gallegos Law Firm, P.C.", see 34 N.M.L. Rev. (2004).